(Dow Jones) Wells Fargo & Co. is tweaking its formula for paying financial advisors in its brokerage offices in a way that could hurt lower producers.
The changes include a cut in base pay but give advisors more chances to pad overall compensation with rewards for things like creating financial plans for clients and promoting Wells Fargo loans and other banking products, according to Wells Fargo.
The company is scaling back a basic pay hike instituted after the business, then part of Wachovia, acquired regional brokerage A.G. Edwards & Sons in 2007. Regional brokerages tend to be less aggressive than Wells Fargo's Wall Street competitors such as Merrill Lynch and Morgan Stanley Smith Barney in terms of skewing pay toward top advisors.
"A common trend is to increase pressure on lower-producing sales people," says Andrew Tasnady, a compensation consultant at Tasnady Associates, who has worked with Wells Fargo's pay plans in the past but hasn't seen the latest changes. The firm is very competitive among big Wall Street firms for advisors in lower pay grades, he adds.
The changes shouldn't represent an overall pay cut for advisors who increased the fees and commissions they brought in during 2010, according to Erik Karanik, Wells Fargo's managing director for financial advisor compensation and incentives. While base pay will be lower, the small size of the cut and extra bonus opportunities "more than offset" the difference, he says.
Under the new scheme, advisors in Wells Fargo's Private Client Group--those who sit in brokerage offices rather than bank branches or deal exclusively with high-net worth clients--will receive 22% of the first $10,000 they produce each month in fees and commissions in 2011, down from 24% for 2010. The number is still higher than the 20% they received before Wells Fargo acquired A.G Edwards. Advisors will continue to receive a 50% payout on fees and commissions they generate above the $10,000-a-month threshold.
The change works out to a cut of $2,400 in an advisor's $28,800 maximum 2010 base pay. Since base pay makes up a smaller proportion of overall compensation for every dollar that advisors generate above the $120,000 threshold, the move should be most painful for those with the smallest and fewest clients. [The company has certain other safeguards in place to boost pay for advisors at the very bottom of the scale.]
In addition to the changes in base pay, Wells Fargo is changing the way it calculates deferred-compensation bonuses for the group. Top advisors continue to receive a higher percentage of the revenue they generate in bonus payments. But Wells Fargo has moved to tie a larger portion of each advisor's payout to factors other than fees and commissions.
For instance, advisors who generate $250,000 to $550,000 in business will now be promised a basic bonus of just 0.5% rather than the 1% they could expect in 2010. But they will have the chance to boost that level to 6% by doing things such as bringing in new clients, creating financial plans, meeting targets for earning fees rather than commissions, and steering clients to loans and other banking products. For 2010, advisors in this cohort could boost their bonus only to a maximum of 5%, with fewer factors leading to rewards.
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